Stillwater Mining is worth a hold but I'm worried about the second half of 2013

02/07/2013 6:34 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

I think the balance of pluses and minuses still points in favor of further increases to the share price of Stillwater Mining (SWC), but the weight to the positive side isn’t as great as it was when I added the stock to my Jubak’s Picks portfolio http://jubakpicks.com/  back on September 25, 2012. I’m raising my target price today from $15 to $17 but please note that the target isn’t much higher and the schedule at April isn’t that far out. The second half of 2013 presents the possibility of a shift in the balance from slightly positive to slightly negative.

On the plus side competitors operating in South Africa (Stillwater mines its platinum in the United States) continue to show production cuts from pre-2012 strike year levels. On January 15, for example, Anglo American Platinum (AGPPY) announced cuts that leave production flat with 2012 but 360,000 ounces below 2011 levels.

Also on the plus side, Stillwater continues to expand production. For the fourth quarter the company announced production of 135,000 ounces, about 10,000 ounces above analyst estimates. Stillwater also announced projections that amount to a 20% increase after 2017.

On the negative side, however, costs continue to rise and look likely to continue to rise. The company projects that costs will increase to $560 an ounce in 2013, about 12% higher than in 2012, on rising costs at its Montana mines.

The other negative item comes from an engineering study at the new Marathon mine that, according to the company, could show some deterioration in reserves and project economics. That study is due in the third quarter of 2013. Given the stock’s appreciation I’d suggest caution ahead of the release of that report.

I think investors can still get another $2.50 in gains from the stock over the next 3 months. That would be roughly 17% in that time period and that makes the stock worth holding. But I do think Stillwater is starting to approach fully valued here and that approach increases the risk.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. All my personal portfolio is invested in the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ . That fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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